Caixin
Sep 21, 2017 12:00 PM
M&A

Cream of China’s Dairy Firms Eyes Australian Milk Giant

Australian dairy firm Murray Goulburn has had a
Australian dairy firm Murray Goulburn has had a "difficult and challenging year," according to its annual report, losing AUD$370.8 million during the financial year that ended June 30. Above, Chinese dairy giant Yili's milk products. Photo: Visual China

Several Chinese dairy giants – including Mengniu and Yili – are bidding for Australian peer Murray Goulburn Co-operative Co. Ltd.

A subsidiary of China Mengniu Dairy Co. Ltd. has placed a non-binding offer for the firm – Australia’s largest processor of milk – a Mengniu spokesperson told Caixin Thursday.

Mengniu rival Inner Mongolia Yili Industrial Group Co. Ltd. is also reportedly placing a bid, offering AUD$1.20 ($0.95) per share – nearly double the price Murray Goulburn shares were trading at before the firm was put up for sale, The Australian reported Wednesday.

Yili confirmed in a Wednesday stock filing that it has submitted “a non-binding strategic development proposal” to Murray Goulburn, but added that there were untrue statements in media reports — without specifying which parts were false.

Murray Goulburn shareholder China Resources has also expressed interest, according to The Australian, but the group did not respond to Caixin’s request for confirmation.

The Australian dairy firm has had a “difficult and challenging year,” with a loss of AUD$370.8 million during the financial year that ended June 30, down from a profit of nearly AUD$40 million a year earlier, the company said in its annual report.

International sales decreased 9.1% in the latest financial year, while sales of adult milk powder grew in Southeast Asian markets – one of the reasons Murray Goulburn has attracted Chinese suitors, a manager at a Chinese dairy firm told Caixin.

Other potential buyers are said to include Canadian dairy firm Saputo Inc., Bega Cheese Ltd. from Australia, and New Zealand-based The a2 Milk Company Ltd. and Fonterra Co-operative Group.

The dairy firm manager said that one of the difficult elements of the buyout stems from a co-op structural reform that Murray Goulburn carried out in 2013, when it began requiring all suppliers to own at least 500 shares of the company. As a result, any bidder needs the support of more than 90% of suppliers.

Another obstacle to a takeover by an offshore group, such as a Chinese one, would be scrutiny from the Australian and Chinese authorities, especially at a time when Beijing is restricting cash outflows.

Consumer demand for dairy products is rising fast in China, with a projected market value of $68.8 billion by 2022, which would overtake that of the U.S., according to consultancy Euromonitor International.

Contact reporter Coco Feng (renkefeng@caixin.com)

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